Law firm ENSafrica executive Lloyd Christie says the Financial Provisions Regulations, which came into effect in 2015, have presented significant opportunities for sustainable finance, as well as environmental, social and governance (ESG) investment in the local mining industry.

He highlights that the regulations are applicable to holders of mineral rights who applied after 2015. The transitional provisions required that existing holders at the date of commencement of the regulations are required to comply with them by June 19, 2021.

The 2015 regulations have an impact on mine costs, as the revised methodology to calculate the quantum of the financial provision required to rehabilitate, remediate and close a mine has resulted in a shortfall for many local mines.

Mines are now required to “top-up” their shortfalls or face penalties from regulators. This presents a challenge for mines looking to source funding to make up the shortfalls in the financial provisions set aside for mine closure.

The National Treasury published a draft technical paper in May 2020, titled Financing a Sustainable Economy, and Christie points out that a key recommendation is to develop a first-ever national green finance taxonomy for South Africa to standardise ESG-qualifying projects.

Further, the working draft of this taxonomy, published in August 2020, presents a draft of the green finance taxonomy matrix, catalogue and technical screening criteria developed to date.

ENSafrica executive Ntsiki Adonisi-Kgame explains that “the legislative framework on mine closure and international best practice require concurrent rehabilitation to minimise environmental risks at the end of the mine’s life cycle. The aim of a mine closure is to bring the land to a sustainable state at the end of its life cycle, and to empower the host community.

“Sustainability must be at the forefront of mine closure.”

Therefore, the broad goals of mine closure would qualify under the working draft of the taxonomy, she adds. The social impact of the end of mine should also qualify under the social and, potentially, governance elements of ESG, she observes.

This means that mines could qualify for additional sources of funding with ESG goals, thereby enabling them to replenish the shortfall in their current financial provision, in expectation of the June 2021 deadline.

Adonisi-Kgame adds that “mines are well placed to investigate what changes would be required to incorporate ESG reporting in their annual reports, as they are familiar with reporting, because they are required to report on multiple aspects of their business on a regular basis”.

Further, most mines also have a sustainability manager who is responsible for stakeholder management, public participation, environmental compliance and remediation. This is ideal for the ESG oversight role, with some changes to ensure that reporting meets international ESG investor standards, she contends.

Sustainable Green Financing

Christie stresses that sustainable finance requires development focused on the long-term outlook and material ESG factors.

“Mobilising capital for a sustainable economy will require shifting the current capital allocation from an unsustainable pathway to a sustainable one, by filling the investment gap to ensure that objectives are achieved timeously. This does not, however, suggest that mining in general is not a sustainable investment option.”

He argues that, to ensure a more “sustainable global energy future”, green metal mining operations will require finance.

Further, the suggested scope of sustainable finance is broad. It is also applicable to all types of financial transactions, productions and services at all stages of decision-making, and during the period of investments.

Christie says the intent to finance more environment-friendly projects that aim to reduce carbon emissions is referred to as ‘green financing’.

“This shift to greener mining methods is still in its early stages locally, but it’s likely to impact on investment by making companies’ implementation of greener mining methods more attractive as an investment option.”

The local industry is beginning to implement international mining standards set out by institutions such as the International Council on Mining and Metal’s Mining Principles, as well as the United Nations’ Sustainable Development Goals, he adds.

As a result, investors are beginning to consider these standards and goals when deciding which projects to finance, Christie concludes.